How do I invest for long-term passive income? For me, it can only be a Stocks and Shares ISA. We can put up to £20,000 per year in one, and not pay tax on the returns.
And right now, I think I see some extra cheap shares to buy with income potential, which the market has shunned.
I’m thinking about financial stocks first, including banks and insurance firms. Property stocks also look very cheap, and I don’t just mean housebuilders. I’m thinking of real estate investment trusts (REITs) too, and I’ll start with one of those.
Health demand
Primary Health Properties owns health facilities and lets them on long-term leases.
If property falls, that could be a risk as the trust has a fair bit of debt. But unlike some other REITs, property values are not what this is about.
No, it’s all about healthcare rental income, and I see that as perhaps the strongest rental sector. The NHS is creaking under demand and waiting lists are growing.
This all means Primary Health can offer a 6.3% dividend yield. That’s a forecast, so it’s not certain. But the City sees it rising further in the next few years too.
Bank cash
NatWest Group is on a 5.3% dividend yield right now. And analysts have it down to grow nicely for the next two years.
They also predict banks should lead the FTSE 100 in earnings growth in 2023. So it could be a good sector to be in for this year and beyond.
Talking of earnings, the NatWest dividend should be covered more than 2.5 times.
Banks face economic risk for sure. But the shares are so low they look almost priced to go bust. And I just don’t see that happening.
Insurance yield
Insurance stocks carry a lot of cyclical risk. But that means they can be great buys when share prices are down, which can give dividends a boost.
Legal & General‘s yield is now up to a whopping 8.4%, and I’d like some of that.
Again, it’s a forecast, so it might not happen. But for the long term, I see the insurance, pensions and asset management businesses as strong.
Money in bricks
Ace investor Warren Buffett says we should buy when others are selling, and be greedy when others are fearful. And a lot of investors have been scared off housebuilders this year.
After a share price slump, Taylor Wimpey offers the biggest ordinary dividend of the FTSE 100 builders now. We’re looking at a yield of 7.5%, and that could add a nice bit of passive income to my ISA.
Buy all four?
The average dividend yield of these stocks comes in a shade under 6.9%. And on a £20,000 investment, it would net me £1,375 per year. At least, that’s the forecast, and it would vary year by year.
I plan to move some investments this year, and I hope to be able to use my full ISA allowance. So will I buy these four? I just might.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
